Country fiche for China

General information

China is the largest market for alternative finance in the world. According to the Cambridge Centre for Alternative Finance (CCAF), China delivered over $100 billion in alternative finance, including peer to peer lending and crowdfunding, in 2015.

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Role of alternative finance

Overall size of the market:

The Chinese crowdfunding market is the largest in the world. This is not surprising, knowing that China is the second largest economy in the world, it has the largest internet user base and that the Chinese alternative finance market is largely unregulated.
The first crowdfunding platform appeared in China in July 2011, and after 5 years of rapid development, the number of various crowdfunding platforms in China had reached 332 by the end of April 2016. In 2015, RMB 11.424 billion (about $101.69 billion) was successfully raised by crowdfunding platforms in China, an upsurge of 305.1% over RMB 2.82 billion in 2014.
Amongst various kinds of crowdfunding, equity-based crowdfunding is favored by capitals. During 2014-2015, Internet companies, brokerages, insurance groups, equity transaction centres, and equity investment funds have sped up their layout in the equity-based crowdfunding field.

China’s alternative finance market grew from USD $5.56 billion in 2013 to $101.7 billion in 2015. China delivered over $100 billion in alternative finance, including peer to peer lending and crowdfunding, in 2015. This was more than a 3X jump from 2014 (305%). An astounding number and incredible rate of growth. Yet this entire sector of finance has grown large.

Regulatory Context

Evidence

Is there a specific national regulation in place applying to crowdfunding?

On July 28th, 2015, ten Chinese central regulatory agencies and industry regulators, including the People’s Bank of China (PBOC), the China Banking Regulatory Commission (CBRC), the China Insurance Regulatory Commission (CIRC) and the China Internet Information Technology Office (CIITO) jointly released the Guiding Opinions on Promoting the Healthy Development of Internet Finance (Guiding Opinions). This is the first step towards a more comprehensive regulation issued by the Chinese government in relation to Internet finance.

- Firstly, according to the Guiding Opinions, innovation in relation to Internet finance platforms, products and services will be encouraged to stimulate market vitality.
- Secondly, the Guiding Opinions require that the financing channels available to Industry Players be broadened and that the financing environment be improved. Measures will be taken to support private investors who want to establish Internet financial industry investment funds.
- Thirdly, the Guiding Opinions require all supervising bodies to simplify their administrative procedures and fully support the development of Internet finance while performing their supervisory functions, in order to create an environment that is beneficial to the development of Internet finance.
- Further, the Guiding Opinions clarify the division of responsibilities amongst the relevant regulatory agencies.
- Fourthly, the Guiding Opinions include certain specific preferential measures to promote the development of Internet finance, including preferential taxation policies
- Lastly, according to the Guiding Opinions, the government will push forward the construction of a credit infrastructure as well as nurture the Internet financial supporting service system. The Guiding Opinions require support to be given to the construction of infrastructure in big data storage, network and information security maintenance and other technical fields; encourage Industry Players to establish credit information sharing platforms;

The China Banking Regulatory Commission (“CBRC”) issued the highly anticipated draft rules for online lending on December 28th, 2015:
A list of 12 forbidden activities serves as the main focus of the regulations:
- Using the platform for self-financing or for financing of related parties.
- Directly or indirectly accepting and managing lender funds.
- Providing guarantees to lenders or promising guaranteed returns on principal and interest.
- Marketing or recommending loan investments to users that have not completed identification verification after registering on the platform.
- Directly making loans to borrowers, unless stated otherwise by applicable laws and regulations.
- Structuring loans into investment products with liquidity timing that differs from the original loan term.
- Selling bank wealth management products, mutual funds, insurance annuities and other financial products.
- Unless stated otherwise by applicable laws and regulations, collaborating with other investment or brokerage businesses to bundle, sell or broker investment products.
- Providing false loan information or create unrealistic return expectations.
- Facilitating loans for the purpose of making investments in the stock market.
- Providing equity crowdfunding or project crowdfunding platform services.
- Other activities forbidden by applicable laws and regulations.
(sources:http://www.nortonrosefulbright.com/knowledge/publications/133500/china-i...http://www.crowdfundinsider.com/2016/01/80326-regulations-galore-part-ii... )

Prospectus requirement

Support policies

Overview:

In recent years, China has witnessed an unprecedented boom in Internet banking and finance covering a wide range of financial services provided over the Internet, such as online money transfer, peer-to-peer (P2P) lending, equity crowd funding and online wealth management.
However, laws and regulations have not kept up with these developments. Even though there has been a huge increase in the number of emerging service providers of Internet financial services and new customers subscribing to Internet financial services on a daily basis, there has been a legal vacuum until recently, when the Chinese authorities issued a series of regulations to tighten their grip on Internet finance.

- Industry Players in the embryonic stage may enjoy preferential taxation policies if certain conditions are satisfied.
- Additional pre-tax deduction of research and development expenses incurred by Industry Players in relation to new technologies and products will be possible.

Given current Chinese taxation laws do not provide special rules for Internet enterprises, these preferential taxation policies will probably only benefit small or innovative enterprises which will also enjoy preferential taxation treatment in relation to income tax and stamp duty, etc.

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